Can Oracle Persevere?

Despite challenges, the company's stock could go to $40 in the next 6 to 12 months.

NEW YORK ( TheStreet) -- It's getting progressively more difficult to look at the strong cash position of database giant Oracle ( ORCL), along with its deep market penetration, and not notice how undervalued the stock is.

As evident by its incredibly low forward price-to-earnings ratio of 10, it seems Wall Street cares very little about its prospects, especially compared to the high multiples enjoyed by rivals such as Salesforce.com ( CRM) and EMC ( EMC). Can Oracle overcome such profound doubt after recent earnings fell short of expectations?

An Un-Oracle-like Quarter

Oracle announced fiscal 2013 first-quarter results that were "un-Oracle-like." The company reported net income of 41 cents a share on revenue of $8.18 billion. The company missed on both the top and bottom lines as analysts were expecting EPS of $0.51 cents on sales of $8.45 billion. Working in its favor, profit rose 14% year-over-year, but revenue shed 2.3% from the same period of a year ago -- ending its streak of four consecutive quarters of revenue growth.

For its performance, the company's CFO, Safra Catz offered some insight on the Oracle's metrics with this statement in a company press release:

"On a non-GAAP basis, new software licenses and cloud software subscriptions sales grew 11% in constant currency and operating margin increased to 44% in Q1," said Oracle President and CFO, Safra Catz. "Q1 operating cash flow increased to a record high of $5.7 billion. We're off to a good start in the new year."

I have to agree that the company is indeed off to a solid start. Impressively, it reported net income of $2.03 billion -- representing a 10.5% increase from the previous year. Not only was this the third consecutive quarter of increased profits, but over the last five quarters Oracle has averaged almost 18% increase in that category. I wonder what else it can do to get Wall Street to care.

Moving Forward

Oracle's challenge is to prove that it can continue to grow its enterprise footprint. Hewlett-Packard ( HPQ) which recently won its legal case against Oracle over software development and Itanium support resulting in a judgment of $4 billion certainly won't make it easy. And other rivals such as SAP ( SAP) and IBM ( IBM) will offer plenty of competition to force Oracle's and to differentiate itself.

The entire sector is now in consolidation mode with each of the names having gone on a shopping spree scooping up anything with cloud ties. One way Oracle can set itself apart is with its Fusion platform which enables enterprises to not only create but operate smart business applications while making otherwise complex IT tasks more efficient.